California controller warns of $72 billion unfunded retiree benefits

(Reuters) - California State Controller John Chiang warned on Tuesday of a growing $71.8 billion unfunded liability to cover the state's retiree health and dental benefits.

The cost is up $7.2 billion from 2013, in part due to new mortality assumptions that men live two years longer than previously anticipated and women live up to 1.8 years longer.

The retiree healthcare liability has been a priority for Chiang, who began writing about the issue in 2007 when the unfunded cost was $47.8 billion.

"The price tag associated with providing healthcare to retired state workers has quietly grown to rival or even eclipse the funding gap associated with public pensions," said Chiang in a statement.

"We remain dangerously complacent about a liability that has grown by a stunning $24 billion in just the past eight years. If we continue to do nothing, we will be sowing the seeds of a future crisis."

Chiang proposes an aggressive five-year plan to fully pre-fund retiree healthcare costs, calling for an annual payment of $250 million to $1.7 billion above the current contribution.

The plan does away with the current pay-as-you-go policy, which covers the minimum amount as costs are due, and shifts to a pre-funding model, which covers future retiree healthcare benefits by setting aside money in a dedicated trust, much like state pensions.

Governor Brown's office issued a statement following the Controller's report promising to put forward a plan to address the "substantial and growing" unfunded liability of retiree health care in his budget to the legislature next month.